Removing Distortion | Conversation with our COO’s
March 21, 2019
As global supply chains become ever more complex, shippers have limited visibility into the factors that impact their freight and fuel spend. Without a solid understanding of these dynamics, shippers are left with incomplete and distorted information to create strategies for their network.
At Breakthrough, both our fuel management and supply chain solutions emphasize that when shippers have a clear, unbiased view of their network, that transparency empowers them to make well-informed, strategic decisions. Though removing distortion means something slightly different when related to fuel or to freight, it is a core component of the Breakthrough Experience.
To give a more holistic picture of what this means to both areas of our business, Chief Operating Officers Jenny Vander Zanden and Heather Mueller, explain below what removing distortion means for shippers actively managing their transportation energy and supply chain strategies based on the most cutting-edge industry best practices.
Jenny | Ensure Fair and Accurate Fuel Reimbursement
“The legacy tools that have been available for shippers in managing energy have traditionally lacked effectiveness. As Breakthrough clients are familiar with, there are four inherent levels of distortion in traditional fuel surcharge programs—time, tax, price, and geography. Beyond this, however, there are additional challenges in today’s market with the volatility of fuel.
For example, given the significant decline in fuel prices at the end of 2018, in the past 90-100 days Breakthrough clients have consistently witnessed “spreads” –or the difference between the national average retail price of fuel and the wholesale price at which carriers most often procure it—above 30 cents per gallon.
This is noticeably higher than the typical levels we’ve seen in the industry over the past four to five years, and as a result, shippers not using Breakthrough are seeing their reimbursement mechanisms misaligned with true costs to move goods to market. In most cases these shippers are paying too much, but can also be paying too little if they move large volumes in California and Pennsylvania, and possess no real visibility into the key economic factors that are motivating this price movement.
The reality is that fuel should be a pass-through expense, instead of a method to create an economic profit center for carriers at shippers’ expense. Breakthrough brings transparency to this relationship. Shippers that partner with Breakthrough know that they are always paying a fair and accurate market price for fuel, and carriers know that regardless of fuel price environment they will be kept whole. This creates an environment that is relationship-based and fair to all parties involved.
Ultimately, by removing the distortion inherent to a surcharge-based reimbursement mechanism, transparency can be achieved regardless of market situation. Fuel should not be a topic of expanding margin for carriers, it should be something that takes the risk away from the them.
As the economic owner of this cost, shippers therefore need the tools to manage it, and this is the value Breakthrough delivers by removing distortion. By providing clarity and transparency, we enable and empower new strategic choices for shippers.”
Heather | Move Beyond Outdated Supply Chain Practices
“Removing distortion can be applied in much the same way toward freight as it is toward fuel, with causes that often arise from outdated practices and generalized statements. With our Breakthrough Fuel Recovery service offering, we believe that actuals are better than averages when shippers manage their fuel spend, and the exact same principle applies to shippers’ supply chains.
A key example of how Breakthrough differentiates its thought process and removes distortion in shippers’ supply chains is through our understanding of how their specific networks fit within larger supply and demand dynamics. Instead of simply utilizing outdated practices to understand where shippers stand compared to generalized national trends, we delve into shipper-specific freight flows and evaluate their larger network implications.
Outdated practices frequently contribute to the distortion shippers see in the freight market. What’s interesting to note is that when the DOE fuel surcharge program was created, it was considered a technological best practice. The same was true was first used to manage sourcing capacity.
The reality is, however, that although technological and data science capabilities have come a long way since then, the transportation industry has lagged in applying them to the complex problems that are faced today.
A generalized and antiquated approach to solving these complexities is through rate benchmarking. This practice is largely equivalent to using the DOE to benchmark fuel and is overemphasized in today’s freight market. Rates are an outcome of a myriad of diverse inputs, and these inputs are what we at Breakthrough strive to help shippers understand.
The ability to understand and change these variable inputs, instead of simply benchmarking against other industry rates, leads to better outcomes in shipper networks. This movement toward data-driven sources of information then elevates shippers away from distorted beliefs and practices.
We motivate strategies using data—not stories or conventional wisdom—which transforms Breakthrough clients into more educated buyers of transportation, mirroring what we’ve been doing in the fuel industry with Fuel Recovery. Better information leads to better decision making, and the more information we can give to shippers, the more capable they are of creating their own pricing structures and approaches to freight strategy. This delineates just how thoughtful a shipper can be about their network after removing distortion.”
Replace Distorted Practices with Data-driven Strategies
As shippers prepare for changing regulatory environments and shifting freight and fuel market dynamics, removing distortion from their current practices will be critical. By implementing active market and data-based management strategies, forward-looking shippers effectively eliminate distortion from their industry practices. This empowers them to appropriately respond to the increasing complexity of both freight and fuel landscapes.
To learn more about how Breakthrough enables data-driven strategies and removes distortion from shippers’ supply chains, please visit our solutions page.